ABA Seeks More Time to Comment on Basel II, Similar Corporate CU System Back to The Drawing Board

WASHINGTON -- As the American Bankers Association recently asked for more time to comment on Basel II beyond the Jan. 23, 2007 deadline, the corporate credit union version of risk-based capital is stalled.

Association of Corporate Credit Unions Interim Executive Director Eric Richard, general counsel for CUNA, explained, "The ACCU committees that look at that are planning to meet shortly to decide what to do about that." Sources have said that NCUA and the corporates have come to an impasse on the details of the proposal.

Richard said he is not sure if there is a middle ground, but the Capital Modernization Committee will be meeting Nov. 13 and ACCU's executive committee a few days later to determine what is the best next step for the corporate credit unions. Options are to modify the proposal the corporates have been working on, pursue the existing recommendation, or not to pursue the matter further, according to Richard.

NAFCU Senior Economist Jeff Taylor said there has been some disagreement between NCUA and the corporates on where the leverage ratio should be set. He said the agency is insisting upon a 4% leverage ratio, which corporates see as impractical. Only about eight of the 30 corporates would meet this test at this point; he said that maintaining 4% would require "perpetual PIC" that member credit unions could not withdraw. As of August 2006, corporates in aggregate held $3.6 billion in PIC (paid in capital) and retained earnings and $11.3 billion in assets, but would need about $1 billion more in PIC and retained earnings to meet the 4%.

Whether this would delay a risk-based capital framework for natural person credit unions that logically could have been patterned from the corporates' experience Taylor could not say.